How to Manage Innovation

Innovation has become management’s chief imperative. Everybody wants to be the next Apple, Google or Netflix, nobody wants to be the next Kokak, Blockbuster or US Steel.

Go to any conference these days and some whip-smart technogeek will declare that you must, “innovate or die,” and then dazzle you a wide array of case studies to illustrate the point. You’ll feel inspired, then scared and then have a few beers and go about your business.

What’s missing is a clear set of principles for action. What good is Steve Job’s unfailing design sense when I struggle to get my outfits to match? How can Google’s technological supremacy be relevant to me when I can’t even figure out my TV remote? In other words, we need to take innovation down from the presentation screen and into working life.

Put more simply, while strategy creates concrete plans for achieving objectives, innovation is about discovery, we never quite know where we’re going until we get there. In other words, while strategy creates a clear path to a goal, innovation is often confused, as Richard Feynman explains in this short video clip:

You can see the conflict. If Feynman, widely hailed as one of the greatest minds of the 20th century, feels like a stupid ape trying to put two sticks together when working on a new problem, then there must be something missing in all of those slick conference presentations.

Clearly, we need to develop frameworks for innovation that are separate from, although compatible with, strategy.

The Three Pillars of Innovation

Finding novel solutions to important problems is not only hard, but complex. There are, after all, a myriad of important problems at any given time and countless potential approaches to each one of them. Innovation seems like too small a word.

Nevertheless, I think we can move the ball forward by breaking innovation down into three discrete areas of activity:

Competency: Every organization has its own history and set of capabilities which determine its innovation competency. An old-line industrial firm can’t just wake up one day and decide to immediately start operating like a hot Silicon Valley tech startup, nor should they try. However, every enterprise can improve.

Tim Kastelle, who researches innovation, has built a powerful framework based on competence and commitment that will help you climb the ladder from laggard to world-class innovator.

Strategy: As every manager knows, resource allocation is a critical strategic element and therefore needs to be an integral part of aligning innovation to strategic objectives.

Again, professor Kastelle provides valuable guidance with his version of the three horizons model which recommends a 70/20/10 split between improving existing products and processes, searching out adjacencies and exploring completely new markets.

Management: Even the most competent firm which is able to deploy resources wisely still needs to manage innovation effectively. This is my primary focus.

Two Crucial Questions

Defining a managerial approach to innovation starts with developing a better understanding of the problem you need to solve. I’ve found that two basic questions help clarify the path forward:

How well is the problem defined?: When Steve Jobs set out to build the iPod, he defined the problem as “1000 songs in my pocket.” He was a master at defining a clear product vision.

Unfortunately, some problems aren’t so easy to frame, like how to create a viable alternative to fossil fuels. So determining how well the problem is defined is a key part of developing an actionable strategy.

Who is best placed to solve it?: Once Jobs defined the iPod problem, it was clear that he needed to find a disk drive manufacturer who could meet his needs and, once he did, he built one of the most successful products in history. Yet, again, sometimes the proper domain to solve a problem isn’t so cut and dried.

One thing I like about these questions is that they clarify the issues quickly. Either there is a simple answer or there isn’t. Once you start asking them, you are well on your way to defining a viable approach.

The Innovation Management Matrix

As I described in an earlier post about my Innovation Management Matrix, determining problem and domain definition allows us to build a simple 2×2 matrix encompassing four basic types of innovation:

Basic Research: When you’re aim is to discover something truly new, neither the problem nor the domain is well defined. While some organizations are willing to invest in large-scale research divisions, others try to keep on top of cutting edge discoveries through research grants and academic affiliations. Often, the three approaches are combined into a comprehensive program.

Breakthrough Innovation: Sometimes, although the problem is well defined, organizations (or even entire fields of endeavor) can get stuck. For instance, the need to find the structure of DNA was a very well defined problem, but the answer eluded even Linus Pauling, the most talented chemist of the day.

Usually, these types of problems are solved through synthesizing across domains. For instance, Watson and Crick solved the DNA problem by combining insights from chemistry, biology and X-ray crystallography. In a similar vein, many companies are learning to embrace open innovation in order to pull in diverse resources.

Sustaining Innovation: Whatever you do, you always want to get better at it. Every year, our cameras produce more pixels, our computers get more powerful and our household products become “new and improved.” Large organizations tend to be very good at this type of innovation, because conventional R&D labs and outsourcing are well suited for it.

Disruptive Innovation: The most troublesome area is disruptive innovation, because its value isn’t always immediately apparent. Notably, Yahoo and Blockbuster had the opportunity to invest in Google and Netflix early on, but missed the opportunity because they didn’t see the potential.

Disruptive innovations generally target light or non-consumers of a category, so they require a new business model and have high failure rates. Venture capital firms who focus on disruptive investments expect to that most will fail. One growing trend is for firms to establish innovation labs, where they can test and learn without excessive risk.

World Class Performers

One thing that is especially confusing about innovation is that great innovators tend to be quite diverse and different from each other. Anybody seeking to define best practices by talking to successful companies would find much of the advice contradictory.

The Innovation Management Matrix can help here as well, because upon a little reflection it becomes clear that successful innovators tend to focus on one area of the matrix.

Basic Research: While most basic research happens in academic institutions, some businesses can excel at it as well. IBM research is one that truly focuses on pushing the boundaries of science. In 1993, for example, they accomplished the first quantum teleportation; a technology that isn’t likely to result in a product until after 2020. They continue to lead in patents.

Xerox’s PARC division, on the other hand, shows both the potential and the pitfalls of basic research. Major innovations such as the ethernet, the graphical user interface and the mouse were developed there, but Xerox failed to commercialize them. They have since spun off the division, which now operates as a high-end research outsourcing contractor.

Breakthrough Innovation: There are those rare souls who are capable of making major breakthroughs, but usually only early in their career. However, waiting for a maverick genius to come along isn’t a viable business model.

That’s why many firms are turning to open innovation platforms such as Innocentive, which allow outsiders to solve problems that organizations are stuck on. Procter and Gamble has built its own Connect + Develop platform which allows them to benefit from expertise in a variety of domains across the world.

Sustaining Innovation: While everybody agrees that Apple is a superior innovator, the truth is that they rarely produce anything truly new. They didn’t invent the digital music player, the smartphone or even the tablet computer. However, they improve on earlier versions to such an extent that they seem like they’re something completely new.

In a similar vein, Toyota makes cars just like any others, except better. What both companies have in common is that they are masters at adapting breakthrough innovations for existing markets (it was, after all, Steve Jobs who most benefited from PARC’s work).

In essence, great sustaining innovators are great marketers. They see a need where no one else does.

Disruptive Innovation: While every new Apple product turns heads, when Google comes out with something most people won’t even understand what it is much less how they’ll make money on it. From Google Maps to driverless cars, they manage to fill needs we didn’t even know we had.

3M, the company that pioneered scotch tape and post-it notes, derives up to 30% of its revenue from products launched in the past 5 years. Both companies use a version of the 15% / 20% rule, where employees are required to devote a fixed portion of their time to projects unrelated to their jobs.

While that’s not a viable solution for most companies, many firms are trying to achieve the same effect on a smaller scale with innovations days, hackathons and innovation labs, where employees are encouraged to think beyond existing lines of business.

Building An Innovation Portfolio

While focus is important, no company should limit itself to just one quadrant. Apple, for instance, is mainly a sustaining innovator, but iTunes was certainly an important disruptive innovation. While Google might be the greatest disruptive innovator on the planet, they spend considerable resources to improve existing products.

So it’s important to develop an effective innovation portfolio that has one primary area of focus, but also pursues other quadrants of the matrix as well and builds synergies between varied approaches. Innovation is, above all, about combination.

In the final analysis, innovation has little to do with flashy conference presentations or exciting case studies. Much like any other business process, effective management entails being able to infuse core principles into everyday operations.

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I like the “science” part of this matrix. The “messy” part is the “art” part of innovation. Amazing how just looking to make something better has created many new innovations—- penicillin, post-it notes, etc.

Ket point is that leaders and management must believe this improvement process is important.